Chipotle Mexican Grill seen getting a boost from lower avocado prices

By Liz Moyer

Investing.com -- Chipotle Mexican Grill Inc (NYSE:CMG) could benefit from improvements in the avocado market, according to analysts at Truist Securities.

In a note on Friday, they cite a projection from the Hass Avocado Board that says shipments will be up 18% in the first quarter versus one year ago, and up 25% in the first half of 2023. That could keep avocado prices lower compared with last year and help Chipotle’s restaurant margin expansion, the analysts said. 

They rate Chipotle a buy with an $1,800 price target. Shares of the burrito chain are up 0.5% on Friday and 11.8% so far this year. The price target implies about 15% upside from current levels.

Chipotle’s largest avocado supplier, Mission Produce, noted in an earnings call on Thursday that it expects its avocado prices to be up sequentially in the quarter ending in April, but to be down 30% to 35% from last year. Prices were down 27% in the first quarter from last year. 

“This is in keeping with CMG's guidance for avocado prices to be up in calendar 1Q23 vs. 4Q22, but we believe it may be less than expected,” the analysts wrote, given the widening year over year decline in Mission’s expected avocado sales price.

Trust estimated that a 10% change in avocado prices affects Chipotle’s restaurant margins by about 30 basis points and annual earnings per share by about 69 cents.